The Brazilian Miracle and the Debt Hangover

How Brazil grew over 10 percent a year in 1968-73 under military rule with state-led investment and foreign borrowing, and how the debt led to the 1980s crisis.

From 1968 to 1973, Brazil grew over 10 percent a year, the “Brazilian Miracle”.

How

Military government (1964-85) led industrialisation.
State companies in steel, mining, energy and telecom.
Import substitution and export promotion.
Foreign borrowing at low interest rates.

Problems

Inequality widened sharply.
Oil shocks in 1973 and 1979 hurt Brazil, a big oil importer then.
Brazil kept borrowing to sustain growth.

Debt crisis

Rising US interest rates after 1979 made debts unpayable.
Brazil suspended payments on commercial debt in 1987.
The 1980s became a lost decade with high inflation.

Lessons

Growth financed by foreign debt can collapse when interest rates rise and export earnings fall.

Legacy

The era left infrastructure and industry, but also debt and inequality.

The dam and the debt

Brazil borrowed abroad to build the giant Itaipu dam with Paraguay. It still provides much electricity, but the loans added to 1980s debt problems.

Thinking fast growth is always sustainable

Debt-financed growth collapsed when rates rose.

Key takeaways

Brazil grew over 10 percent a year in 1968-73.
Growth was state-led and financed by foreign borrowing.
Oil shocks and rising rates caused a debt crisis.
The 1980s became a lost decade.